Gracefully Transition from Employment to Independent Freelancing

04 Mar 2016

Technology has enabled most of us to work remotely and this is one of the reasons for increasing popularity of freelancing. To gain flexibility and independence, many employees the world over are switching to a career as a freelancer and work for themselves, as opposed to working in a traditional job.

While you are excited to launch your freelance career, there can be a number of elements in your employment contract that can constrain your transition:

Restrictions in Current Employment Contract

Non-Compete Clause

Non-Client Poaching Clause and Non-solicitation Clause

We address these legal constraints below. However, most of these can be overcome through mutual agreement with your employer – if you manage to make a graceful transition. Thus, let us start by considering how you do that.

Making a Graceful Transition

While in most cases, you will be free to simply quit your job and start your life as a freelancer at any time you want (subject to constraints below). In many situations, however, a more gradual transition will be preferable – both for you and for your employer.

A gradual transition enables you to build up a customer base and income as a freelancer, while still having some income from your employer. At the same time, it enables your employer and manager to adjust to your absence.

The key element to making your transition graceful is communication. It is almost always a good idea to speak with your manager and openly discuss your plans to go freelance. Most managers are very receptive as long as you approach them openly and honestly. However, before speaking with the manager, you should make sure you are properly prepared for the discussion. This includes considering:

How you will broach the topic?

How to “sell” the idea of going freelance to your manager and the employer?

What concerns and problems might arise for your manager from you going freelance, and how you can plan around and help mitigate these?

It requires some planning and preparation to successfully have this conversation with your manager, but if you handle it correctly, it can be a win-win for both you and your employer, and give you much needed stability as you build your freelance business. In fact, your former employer may well become one of your biggest initial clients.

While the conversation can be tricky, proper preparation will make it much easier and vastly increase the likelihood of a good outcome. For example, if you can show your manager and employer that your going freelance will, in fact, benefit the organisation, it will help maintain the relationship and leave a lasting positive impression on the mind of your manager.

A crucial step to the conversation is to put yourself in the shoes of your manager and employer and look at the situation from your manager’s perspective. Your manager may be concerned about the following:

who will take over your responsibilities?

how will your knowledge will be transferred and maintained in the organisation?

how will you perform in the transitional period?

Ideally, you will already have thought through all your manager’s concerns and can put forth a proposal on how to address and mitigate them.

Examples of how to create a win-win situation for you and your manager can include pointing out how, with you as a freelancer, your salary becomes a consulting fee – which is variable depending on how much work you do. Thus, your manager will have more flexibility to manage costs if workloads change.

Further, you will have thought about how some of your tasks can be handled by other members in your team (or perhaps even automated), so that going forward, your freelance work will only be the most value adding work.

Also, you may provide a detailed plan for your transition, mapping out all your work and showing how it’s gradually transitioning to others or moving to you as a freelancer. This should include how you will transfer knowledge and provide detailed documentation of all the tasks that will transition to other people.

Finally, a very important thing is to make sure your enthusiasm for going freelance also reflects in your enthusiasm for continuing to do excellent work for your employer and manager. Your manager will most likely (and possibly rightfully) be concerned about your commitment to the company’s success going forward – and it will make for a much smoother transition if you can dispel these concerns very early on.

Having considered how to make your transition as graceful and tactful as possible, there may be a few potential legal constraints in your contract you need to be aware of. Being aware of these and bringing them up in your conversation with your manager may enable you to reach an agreement, which completely removes the constraints – giving you more freedom to build your business as a freelancer.

#1 Restrictions in Current Employment Contract

Most employment contracts contain clauses that restrict employees’ ability to perform paid work outside of the employment. This is because many employers do not like the idea that their employees share their time and energies working as a freelancer.

Some employment contracts do allow freelancer work but make it mandatory for the employees to keep the employer informed about any other work they undertake. The primary purpose of such clause is to ensure that employees do not work with the competitors and/or do not use the intellectual property of the employer.

While being employed and thinking about a career as a freelancer, one of your first steps should be to check out your employment contract for any clauses, which could restrict your plans. Depending on the clauses in your employment contract, you may:

be free to do freelance work without informing your employer. If this is the case, you need to make sure, however, that your freelance work does not, in any way, diminish your utility as an employee; or

be allowed to work as a freelancer along with your current employment, but only after keeping your current employer informed about the nature of freelance work you are doing and the client you are working for; or

have to resign from your current employment in order to proceed with any freelancer work. This may, of course, be negotiable, and it is worthwhile seeing if you can come to an agreement with your employer.

Again, if you have a good conversation with your manager and make a graceful transition, any constraints like the above may be removed by mutual agreement (do make sure you get this in writing to avoid being in breach of your contract).

#2 Non-Compete Clause

While you are employed, your employer obviously will not like you to work for anyone that might be considered as a direct or indirect competitor. A non-compete clause within the employment agreement is designed to ensure that you do not work in conflict with the employer. When doing freelance work while still being employed, you must ensure that you are operating within the confines of the non-compete clause of your employment agreement.

Some non-compete clauses contain work restrictions beyond the duration of your employment. However, in most jurisdictions these restrictions have to be reasonable to be legally enforceable, which generally means they have to be limited to a particular territory, product, service or a reasonable period of time.

If you are freelancing while still employed, you need to be very careful about engaging with any existing or potential client of the employer. For obvious reasons, your employer most likely will not be receptive to the idea of you working in a manner that may be considered “competitive”.

This constraint may be relatively crippling if you are working in a specialist field and there are only a few companies that can benefit from your services as a freelancer – and they are all considered competitors. In this situation, it is even more important that you engage your employer and manager and illustrate how your work (as a freelancer) for a competitor is not detrimental to your employer. The key, again, is to have an open and honest conversation – and having researched and prepare well in advance.

#3 Non-Client Poaching Clause and Non-solicitation Clause

Clients are precious assets of any business. No business likes its clients to be enticed and poached by a rival. And if the poacher is a current or former employee, it is even worse. Similarly applies to employees of your employer (non-solicitation).

As an employee, you are expected to observe certain guidelines for good and ethical conduct. Non-poaching of a client by incentives or any other means, is one of the generally accepted ethical conducts that any employee is expected to abide by.

If you are planning to kick-start your freelance career, you should ensure that you are on the right side of such non-client poaching clause.

However, there may be circumstances where you can actually work with the client of the employer without violating your employment conditions. While it’s certainly worth being aware of any legal constraints in your employment contract, which may hinder your freelance aspirations, in a lot of situations, these can be overcome through an open and honest conversation with your employer and manager. To increase your chances of successfully navigating the conversation and making a graceful transition to freelancer, you need to prepare well and put yourself in your manager’s and employer’s shoes and understand their perspective and concerns.

For all the legal aspects above, Tact Law can help review your employment agreement and our experienced contract lawyers can help clarify any obligations and restrictions, which can influence your ability to begin your freelance career.

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